Overview of GNMA Reverse Mortgage Backed Securities (HMBS) Evaluations

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1 Overview of GNMA Reverse Mortgage Backed Securities (HMBS) Evaluations April 8, 2010 Matthew Brodin, Director-Evaluated Services Lynn Barry, Manager-Structured Group Interactive Data Pricing and Reference Data, Inc. 10

2 Agenda Reverse Mortgage Overview GNMA HMBS Program Overview Fixed-Rate GNMA HMBS Evaluations 1

3 What is a Reverse Mortgage? A reverse mortgage is a real estate loan that allows homeowners age 62 or older (under FHA requirements) to convert equity in their homes into cash without selling their home The mortgage lender makes payments (either lump sum or over time) to the homeowner based on an amount determined by: Age of the youngest homeowner Appraised value of the home Current interest rate (for fixed rate) The loan amount is not based on credit history, income or medical history The loan is due upon a maturity event (e.g. sale of home, death of the homeowners) The homeowner retains ownership of the home and is responsible for real estate taxes, insurance and maintenance 2

4 3 How a Reverse Mortgage Works

5 FHA Reverse Mortgage Characteristics The borrower does not need to make any payments as long as they maintain the home as their primary residence and meet other requirements Interest accrues at a compounding rate on the outstanding loan balance A reverse mortgage is a negative amortization loan (outstanding principal increases) Non-Recourse No Prepayment Penalty (high costs act as a deterrent) Maturity Event (triggers requirement for loan to be paid off) Death of the borrower Borrower sells the property Borrower does not occupy the property for 12 months Prepayment 4

6 Standard Mortgage vs. Reverse Mortgage Standard Reverse Debt Debt Equity Equity Time Time 5

7 HUD Principal Limits for Fixed Rate HECMs Principal Limits for Fixed Rate HECMs* Max claim amount (MCA) Lesser of: home appraisal value 500,000 HUD limit 362,792 Max claim amount (MCA) 362,792 Principal Limit Age of youngest borrower 75 Interest rate 5.50% Max claim amount (MCA) 362,792 *Assume fixed-rate fully drawn Principal limit ** **Total amount available to borrower equals principal limit less; servicing fees, origination fees, other costs HUD principal limit table: 6

8 Overview of GNMA HMBS Program Ginnie Mae and FHA guaranty carry full faith and credit of the United States Government Ginnie Mae guaranty protects HMBS investors against issuer risk The FHA guaranty on the underlying Home Equity Conversion Mortgage (HECM) collateral protects against credit risk Fixed Rate HECMs make cashflows more predictable because the balances are fully drawn The fixed coupon rate makes it easier to project the amount of monthly negative amortization Principal limit is a factor of the value of the home incorporating the HUD limit, and HUD Matrix (borrower s age and interest rate) Principal pay downs for HECMs Assignment to HUD (98% of maximum claim amount if conditions are met) Maturity Event (Mortality or Mobility) 7

9 Evaluated Pricing Services We are an independent source of evaluated prices.* An evaluation represents our good faith opinion, based on information available to us at the time, as to what a buyer in the marketplace would pay for a security (typically in an institutional round lot position) in a current sale. Given that, on average, less than 1% of the outstanding U.S. dollar debt trades on any given day, we generally draw parallels from current market activity to generate evaluations for the majority of issues that have not traded. * Interactive Data Pricing and Reference Data, Inc. does not advise clients as to what securities they should hold, buy or sell. We do not calculate net asset values (NAVs) for mutual fund clients, nor do we assess the suitability of any evaluations for any particular situation. Calculated from: Securities Industry and Financial Markets Association, Outstanding U.S. Bond Market Debt, Securities Industry and Financial Markets Association, ; and Securities Industry and Financial Markets Association, Trading Volume in the U.S. Bond Markets, Securities Industry and Financial Markets Association, 8

10 Interactive Data s Fixed Rate GNMA HMBS Evaluations Employ third party provider for cash flows and collateral analysis/performance Assign a street derived prepayment vector Observe Primary and Secondary spread and trade levels Currently evaluating 140 securities and expect to continue to expand Currently available in IDSI SM, VADS SM, Remote Plus SM and 360View SM Clients interested in receiving evaluations for GNMA HMBS should contact their Interactive Data account representative 9

11 Limitations This document is provided for informational purposes only. The information contained in this document is subject to change and does not constitute any form of warranty, representation, or undertaking. Nothing herein should in any way be deemed to alter the legal rights and obligations contained in agreements between Interactive Data Pricing and Reference Data and its clients relating to any of the products or services described herein. Interactive Data Pricing and Reference Data does not provide legal, tax or accounting advice. Clients should consult with an attorney or accounting professional regarding any specific legal tax, or accounting situation. Interactive Data Pricing and Reference Data makes no warranties whatsoever, either express or implied, as to merchantability, fitness for a particular purpose, or any other matter. Without limiting the foregoing, Interactive Data Pricing and Reference Data makes no representation or warranty that any data or information (including, but not limited to, evaluations) supplied to or by it are complete or free from errors, omissions or defects. Evaluated pricing is provided in the U.S. through Interactive Data Pricing and Reference Data, Inc. and internationally through Interactive Data (Europe) Ltd. and Interactive Data (Australia) Pty Ltd. Interactive Data SM and the Interactive Data logo are registered service marks or service marks of Interactive Data Corporation in the United States or other countries. 360View SM, IDSI SM, RemotePlus SM and VADS SM are service marks of Interactive Data Pricing and Reference Data Inc. Other products, services or company names mentioned herein are the property of, and may be the service mark or trademark of, their respective owners Interactive Data Pricing and Reference Data, Inc.

12 Contact Information Matthew Brodin Lynn Barry